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Corporate
and
Commercial
Agreements
Drafting Guidelines,
Forms and Precedents
RODNEY D. RYDER
Detailed Contents
vii
GENERAL CONTENTS
• Preface
• Detailed Contents
• Table of Cases
1.
v
ix
xvii
DRAFTS, FORMS, PRECEDENTS—A PRELIMINARY NOTE
2. COMPANY LAW: FORMS AND PRECEDENTS
2
41
3. GENERAL COMMERCIAL AGREEMENTS
101
4. INTELLECTUAL PROPERTY
369
5. FRANCHISE AGREEMENTS
515
6. PROJECT FINANCE
539
7. DEEDS
660
8. BONDS
679
9. PLEDGES
704
10. ARBITRATION
715
11. LEASE
727
12. TRUST
764
13. SOCIETY
794
14. POWER OF ATTORNEY
808
• Subject Index
812
vii
DETAILED CONTENTS
• Preface
• General Contents
• Table of Cases
v
vii
xvii
CHAPTER 1
DRAFTS, FORMS, PRECEDENTS—
A PRELIMINARY NOTE
DEED DRAFTING AND CONVEYANCING IN INDIA
FORMS OF CONVEYANCE
Deeds poll
Indentures bilateral
Simple words
PARAGRAPHS, PUNCTUATION AND CAPITALS
FIGURES AND WORDS
General requirements of deed of transfer
DIVISION OF DEED
(a) Description of the deed
(b) Date
(c) Parties to the deed
(d) Recitals
Caution
ORDER OF RECITALS
FORM OF RECITALS
(e) Testatum
(f) Consideration
(g) Receipt
(h) Operative words
(i) Parcels
(j) Exceptions and reservations
(k) Habendum
(l) Covenants and undertakings
(m) Testimonium
(n) Signatures and attestation
Sign
FORMS OF ATTESTATION
Illiterate persons
Delivery
ERRORS AND OMISSIONS
POSTSCRIPT
ENDORSEMENT AND SUPPLEMENTAL DEEDS
FORM OF ENDORSEMENT
FORM OF SUPPLEMENTAL DEED
ix
2
3
3
3
3
4
4
4
5
5
5
6
13
14
14
15
15
15
15
16
16
19
19
19
20
20
21
22
22
22
23
23
23
23
24
x
Corporate and Commercial Agreements
STAMP DUTY BY WHOM PAYABLE
STAMP DUTY ON ENDORSEMENTS AND SUPPLEMENTAL DEEDS
REGISTRATION
PRECAUTIONS
Rules of Construction Deeds
NOTES ON THE INDIAN LAW OF CONTRACT
Introduction
General Concepts
Breach
Excuses for non-performance
Indemnity and Guarantee
Bailments and Pledges
Bona fide Purchases
Interpretation of Contracts and Applicable Law
Capacity to Contract
Formal Requirements
Written Agreements
Commencement
CONTRACT DRAFTING AND CONTRACT MANAGEMENT
Engagement Phase
An; alytical Phase
Drafting Phase
Execution Phase
Contract Administration Phase
TYPES OF CONTRACTS
CONTRACTS
DATA COLLECTION DURING THE ENGAGEMENT PHASE
Check-list
STANDARD CLAUSES CHECKLIST
24
24
25
25
26
27
27
28
29
30
30
30
31
31
32
32
32
34
34
35
35
35
36
36
36
36
36
36
37
CHAPTER 2
COMPANY LAW: FORMS AND PRECEDENTS
TYPES OF COMPANIES
Public and Private Companies
Formation procedure (private limited company)
PRECEDENTS
• Application Form for availability of names
• Memorandum of Association
• Articles of Association
• Legal Due Diligence
• Due Diligence Report
41
41
41
44
45
59
70
74
CHAPTER 3
GENERAL COMMERCIAL AGREEMENTS
PRECEDENTS
• Contract of Employment—(For A Junior Level Employee)
• Contract of Employment—(For A Senior Level Employee)
101
104
Detailed Contents
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Employee Innovation And Proprietary Information Agreement
Consultancy Agreement
Consulting Services Agreement
Termination Clause
Consultant’s Non-disclosure & Non-compete Agreement
Agency Agreement
Supply Contract
Software Services Supply Agreement
ERC Facilities Agreement
Facilities Sharing Agreement
Financial Collaboration Agreement
Marketing Assistance Agreement
Office Refurbishment Agreement
Research And Development Agreement
Agreement for sale made by a vendor in favour of purchaser, the purchaser
to execute a mortgage deed for balance of purchase money
• Agreement extending the time for completion of a purchase and otherwise
modifying terms of the contract supplemental to the original contract
• Agreement for sale of property with usual provisions
• Exclusive Reseller Agreement
A GUIDE TO DRAFTING JOINT VENTURE DOCUMENTATION
• Joint Venture Agreement
• Company, Management and Project
• Shareholders’ Agreement
• Shareholders’ Agreements and the Articles of Association
• Share Transfer Agreement
• Transfer of Shares (Specimen Clause)
• Share Acquisition and Reconstruction Agreement
• Transfer of Undertaking Agreement
• Subscription Agreement
xi
109
111
115
154
159
163
165
171
181
191
196
206
218
239
251
252
253
254
271
275
285
295
316
319
331
337
347
354
CHAPTER 4
INTELLECTUAL
PROPERTY
ASSIGNMENT OF COPYRIGHT
Disputes as to Assignment
Infringement
“PASSING OFF” ACTIONS UNDER INDIAN LAW
The history of passing off actions under English Common Law
Modern formulation of the law of passing off
Remedies
Proof of damage
Means adopted for passing off
Passing off in professional practice
“Passing off” in Indian Courts: Remedies available
Mareva Injunctions in India
PRECEDENTS
On Trademark and Brand Protection
• Trademark License Agreement
369
371
371
374
374
375
376
376
377
377
378
379
380
380
xii
•
•
On
•
•
•
•
•
•
•
•
•
•
•
•
•
On
•
•
•
•
•
•
•
Corporate and Commercial Agreements
Trade Name License Agreement
Deed of Assignment
Copyright (Media Entertainment)
Writer Employment Agreement
Sound Recording and Distribution License Agreement
Co-production Agreement
Deed of Assignment of Copyright
Dialogue and Vocal Replacement Agreement
Actor Employment Agreement
Memorandum of understanding between two Media Companies
Patent Agreement for Employees
Patents, Patent Licensing and Protection in India
Technology Transfer and License Agreement
Technology and Marketing Collaboration Agreement
Assignment of Rights in Invention
Technology Assignment Agreement
Confidentiality and non-disclosure
Know-How Assignment Agreement
Confidentiality Agreement (Between A Company and an individual)
Confidentiality Agreement - Both party obligations
Consultancy Agreement
Confidentiality and Non-discloser Agreement
Employees non-disclosure and non-compete agreeement
Non-disclosure and non-compete agreeement
386
392
394
398
405
409
411
425
430
442
443
446
460
483
484
487
492
496
499
503
506
509
CHAPTER 5
FRANCHISE AGREEMENTS
OUTLINING THE SPHERE OF LAW RELATING TO FRANCHISE
Direct Franchising
Franchising through Subsidiary or Branch Office
Area Development Agreement
Master Franchising Agreement
Franchising through Joint Venture
PRECEDENTS
• Franchise Agreement
• Draft Version of Franchise Agreement
• Franchising Agreement
515
515
516
516
516
516
517
521
526
CHAPTER 6
PROJECT FINANCE
THE RISK MATRIX
DUE DIGILENCE
SECURITY
FORCE MAJEURE
WHEN THINGS GO WRONG
Contract Damages
Liquidated Damages
539
542
542
543
544
544
544
Detailed Contents
CONCLUSION
POWER PURCHASE AGREEMENTS - PITFALLS AND REMEDIES
Definitions
Tariff
Counter Guarantee
Financing
Price Mechanism
Pricing Risk
Payment Risk
Third Party Sale
Tax Holidays
Judicial Inquiry
Force Majeure
Conclusion
FUEL SUPPLY AGREEMENT - BANKABLE OFFTAKES
Infrastructure
Pricing
Payment
Force Majeure
Dispute Resolution
Transportation
Scheduling; Metering and Weighing
Quality and Rejection
Default
Remedies for Breach
DUE DILIGENCE
TYPICAL DUE DILIGENCE DELIBERATIONS IN A PROJECT
FINANCING STRUCTURE
The Project Sponsor
The Site of The Project
Political, Economical & Legal Considerations
Financial Parameters
Construction Commitments
Input Agreements
Off-take Agreements
General Contract Review
Environmental Considerations
Critique
PRECEDENTS
xiii
545
545
546
546
547
547
548
548
548
549
549
549
549
550
550
551
551
551
551
551
552
552
552
552
553
553
554
554
554
554
554
554
555
555
555
555
555
556
CHAPTER 7
DEEDS
PRECEDENTS
• Assignment of Business with Goodwill and Tenancy Rights
• Assignment of Simple Contract Debts
• General Power of Attorney
• Special Power of Attorney in respect of entering into and concluding
one Transaction
660
663
664
670
xiv
Corporate and Commercial Agreements
• Special Power of Attorney for Admitting Execution before Sub
Registrar of Document already executed
• Release and Indemnities
• Guarantees
• Guarantee, Deposit and Charge as Security for Advances to a Third Person
• Agreement of Reference – To Arbitration
672
673
673
674
676
CHAPTER 8
BONDS
FORM
USE OF BONDS
HEIRS AND REPRESENTATIVES
TWO RATES OF INTEREST
STAMP DUTY
REGISTRATION
PRECEDENTS
• Simple Money Bond for money borrowed
• Simple Money Bond, for Money due with Recitals
• Instalment Bond
• Equated Instalments Bond
• Bond by a Debtor and his Surety for a Loan
• Bond by a Debtor and his Surety for an Existing Liability
• Instalment Bond, with Surety, for an Existing Liability (in the form of a deed)
• Bond with Sureties for a Loan Repayable in Equated Instalment with
Hypothecation of Property (in the form of a deed)
• Bond with Sureties for Loan (in the form of a deed) with Provision for
lower Rate of Interest in case of Punctual Payments
• Administration Bond by a Person Obtaining Letters of Administration
(section 291, Succession Act)
• Security Bond given for the Grant of a Succession Certificate (section 375,
Succession Act)
• Administration Bond by Guardian Appointed under the Guardians and Wards Act
• Security Bond by a Debtor (under section 21, Provincial Insolvency Act)
• Security Bond by a Receiver Appointed in a Suit: Order 40, Rule 3(a), C.P.C.
• Cash Security Bond by an Employee of Government (in the Form of Agreement)
• Personal Security Bond by an Employee, with Sureties, Pending the
Execution of a Hypothecation Bond
• Security Bond by Sureties on behalf of a Claimant to Money due from
Government to his Deceased Ancestor
• Security Bond by Surety of the Manager of an Estate (Hypothecating Property)
• Security given by a Legatee under a Lost Will to a Purchaser of
Bequeathed Property (with Hypothecation)
• Security Bond with two Sureties, the Principal Agreeing to Deposit Cash
Security by Monthly Deduction from Pay
• Bond by Sureties of a Student Admitted to a College to Secure the
Performance of an Agreement
• Bond by Surety for Due Observance by Another of Terms of Partnership Deed
• Bond by a Trainee (if minor, by his Guardian) with Sureties
679
679
680
680
681
681
681
681
682
682
683
683
683
684
685
686
687
687
688
688
689
690
691
692
693
694
695
696
697
Detailed Contents
• Performance Guarantee Bond
• Deed of Indemnity
• Indemnity Bond
xv
697
699
700
CHAPTER 9
PLEDGES
“PLEDGE”, “PAWNOR AND “PAWNEE” DEFINED
DOCUMENTS AND SECURITIES
PRECEDENTS
• Pledge Deed
• Pledge of Term Deposit as Additional Security for NCDs subscribed
by Beta Bank
704
704
705
713
CHAPTER 10
ARBITRATION
DISPUTE SETTLEMENT: ALTERNATE DISPUTE RESOLUTION
DRAFTING AN ARBITRATION AGREEMENT/CLAUSE
Arbitration Agreement
Judicial Analysis
Halsbury’s Laws
A brief epilogue
INTERNATIONAL COMMERCIAL ARBITRATION
Advantages of alternative dispute resolution
Disadvantages of alternative dispute resolution
ENFORCEMENT OF ARBITRAL AWARDS
Detrimental Reliance
ARBITRATION CLAUSE
DAMAGES IN ARBITRATION
715
715
716
717
719
719
719
720
720
721
721
722
725
CHAPTER 11
LEASE
PARTIES
CONSIDERATION
COVENANTS ENTERED INTO BY THE LESSEE
COVENANTS BY THE LESSOR
PROVISO FOR RE-ENTRY
AGREEMENT OF LEASE
PRECEDENTS
• Agreement of Lease
727
727
727
728
728
728
731
CHAPTER 12
TRUST
THE GOVERNING LEGISLATION
The Nature of an Indian Trust
Requirements of a Trust
764
764
765
xvi
Corporate and Commercial Agreements
Trust deed
Complete constitution of a trust
Legislation relating to trusts
Trustees
Trustees’ Duties
REGULATORY ENVIRONMENT AND LIMITATION ON TRUSTS
Courts
Breach of Trust
Limitation on trusts
Perpetuities and accumulations
Remuneration
Exoneration clauses
Public policy
Who can act as a trustee?
REASONS FOR THE CREATION OF TRUSTS AND THEIR USES
Personal or Private Trusts
Pension and employee benefits
Collective investment schemes
Charities
Non-Charitable Purpose Trusts
CONCLUSION
PRECEDENTS
• Agenda of meeting of Board of Trustees
• Appointment of additional members to Board of Trustees
• Deed of Family Trust Settlement
• Rules and Regulations Governing the Management of “Nature For Children”
• Trust Deed
• Alteration of A Trust Deed
766
766
766
767
768
770
770
772
773
773
773
774
774
775
775
775
776
776
776
777
777
777
778
779
784
788
793
CHAPTER 13
SOCIETY
794
CHAPTER 14
POWER OF ATTORNEY
DEFINITION
ELEMENTS OF POWER OF ATTORNEY
PRECEDENTS
• Irrevocable Power of Attorney
• Power of Attorney – 1
• Power of Attorney – 2
808
808
809
809
810
811
• Subject Index
812
CHAPTER 1
DRAFTS, FORMS, PRECEDENTS—
A PRELIMINARY NOTE
SYNOPSIS
DEED DRAFTING AND CONVEYANCING IN INDIA
FORMS OF CONVEYANCE
Deeds poll
Indentures bilateral
Simple words
PARAGRAPHS, PUNCTUATION AND CAPITALS
FIGURES AND WORDS
General requirements of deed of transfer
DIVISION OF DEED
(a) Description of the deed
(b) Date
(c) Parties to the deed
(d) Recitals
Caution
ORDER OF RECITALS
FORM OF RECITALS
(e) Testatum
(f) Consideration
(g) Receipt
(h) Operative words
(i) Parcels
(j) Exceptions and reservations
(k) Habendum
(l) Covenants and undertakings
(m) Testimonium
(n) Signatures and attestation
Sign
FORMS OF ATTESTATION
Illiterate persons
Delivery
ERRORS AND OMISSIONS
POSTSCRIPT
ENDORSEMENT AND SUPPLEMENTAL DEEDS
FORM OF ENDORSEMENT
FORM OF SUPPLEMENTAL DEED
STAMP DUTY BY WHOM PAYABLE
STAMP DUTY ON ENDORSEMENTS AND SUPPLEMENTAL DEEDS
REGISTRATION
1
2
Corporate and Commercial Agreements
PRECAUTIONS
Rules of Construction Deeds
NOTES ON THE INDIAN LAW OF CONTRACT
Introduction
General Concepts
Breach
Excuses for non-performance
Indemnity and Guarantee
Bailments and Pledges
Bona fide Purchases
Interpretation of Contracts and Applicable Law
Capacity to Contract
Formal Requirements
Written Agreements
Commencement
CONTRACT DRAFTING AND CONTRACT MANAGEMENT
Engagement Phase
Analytical Phase
Drafting Phase
Execution Phase
Contract Administration Phase
TYPES OF CONTRACTS
CONTRACTS
DATA COLLECTION DURING THE ENGAGEMENT PHASE
Check-list
STANDARD CLAUSES CHECKLIST
Deed Drafting and Conveyancing in India
Conveyancing1 in India has its origins in the presidency towns and adjoining
mofussil areas where drafting was done by solicitors trained in the English system
of conveyancing. The work since the earliest days has usually been in the hands
of scribes (deed writers2 ) who have had no legal education or training but are only
conversant with certain set forms of various kinds of deeds in common use in the
country, and acquire by experience the knack of adapting them to their
requirements. The origin of these vernacular forms is not known but the forms are
very old and have been handed down from generation to generation. These
lawyers, who have ordinarily had no education in conveyancing, generally get hold
of some English forms from a solicitor in Calcutta or Bombay and adapt them to
their needs, or take the help of some book containing English precedents of
conveyancing3 . The art of conveyancing in India has developed without the
assistance of the formalised structure of legislation, in contrast to the legislative
solutions available in England4 , laying down what a conveyance should, and what
1. Conveyancing has been defined in various texts; it has been described as the “art of
creating, transferring and extinguishing interests in property both in dealing with
substantive law and providing examples to illustrate its principles” in Goodeves’ Real
Property (1929) p. 72.
2. The North Indian vernacular being ‘vasika nawis’.
3. Mogha’s Indian Conveyancer, Eleventh Edition.
4. Namely, the Conveyancing Act, 1881 (sec. 2 interpretation of various terms) and the Law
of Property Act, 1925. The latter Act, contains among other things (many of which are
covered by our Transfer of Property Act, Trusts Act, Contract Act, Registration Act, etc.)
standard forms in the same manner as our Civil Procedure Code contains standard
Drafts, Forms, Precedents—A Preliminary Note
3
it need not contain, and providing a set of authority forms. In the last decade,
global legal traditions have benefited from interaction. India has benefited no less
in exchanging drafting techniques with the rest of the world.
Forms of Conveyance
The form in which a conveyance is drafted is immaterial but as English forms
have, by long usage, obtained a sort of sanctity, the same may be retained with
necessary alterations. In England deeds are drafted either as deeds poll or as
indentures.
Deeds poll1
Deeds poll are those in which there is one party only and are so called
because they were at one time polled or cut level at the top. They are chiefly used
for the purpose of granting powers of attorney and for exercising power of
appointment or setting out an arbitrator’s award. They are drawn in first person.
Indentures bilateral2
Indentures are those deeds in which there are two or more Parties. Indentures
were so called as at one time they were indented or cut with an uneven edge at
the top. In old times the practice was to make as many copies or parts, as they
were called, of the instrument as there were parties to it, which parts taken
together formed the deed, and to engross all of them on the same skin or
parchment. Then a word, usually Cyrographum, was written between the two or
more copies, and the parchment was cut in a jagged line through this word. The
idea was that the difficulty of so cutting another piece of parchment that it would
fit exactly into this cutting and writing constituted a safeguard against the
fraudulent substitution of a different writing for one of the parts of the original. This
practice of indenting deeds has ceased long ago and even in England the practice
of calling them indentures has largely fallen into disuse.
Indian usage: In India the Stamp Act, 1899 uses the word “instrument” for
every document by which any right or liability is, or purports to be, created,
transferred, limited, extended, extinguished or recorded, vide sec. 2(14). In the
Registration Act, 1908 the word “document” has been used instead. In this book,
for the sake of uniformity, the word “deed” has been used generally.
Simple words
In English conveyances several words in old English form are used, e.g.,
“witnesseth”, “doth covenant”, etc. We can however as well use their modern
equivalents, e.g., “witnesses”, “covenants”, etc.
forms of pleadings, etc. Its sec. 46 empowers the Lord Chancellor to prescribe other
forms of agreements as well. Its secs. 61, 62 and 63 also contains rules of interpretation
applicable to deeds generally, subject to special provisions to the contrary as may be
specified in a deed. Some other provisions, which may be usefully adapted, is one in sec.
15 (The persons expressed to be parties to any conveyance shall, until the contrary be
provided, be presumed to be of full age at the date thereof.”).
1. See notes to sec. 57 Law of Property Act, 1925 in Halsbury’s Statutes, Vol. 27, p. 435.
2. Ibid.
4
Corporate and Commercial Agreements
Paragraphs, Punctuation and Capitals
In England, deeds were formerly all written in one paragraph without
punctuation, but the practice of dividing the deed into paragraphs is now growing.
As the division of a deed into paragraphs makes it more easily intelligible, this
practice is recommended. The commencement of every important part of a deed
is marked by putting the first word or phrase in capital letters and this was very
necessary when the deed was not divided into paragraphs as a reader who wanted
to refer only to a particular part could easily find what he wanted without having
to read the whole. With the division of deed into paragraphs the use of capital
letters is not absolutely necessary but is continued in practice.
Although a free use of punctuation marks is not desirable, as a mistake in
punctuation sometimes alters the sense, yet a full stop or semicolon, as may be
proper, at the end of each paragraph would be suitable. The language of the deed
should be such that the intention of the parties should be clearly understood
without the aid of punctuations.
A deed poll is generally drawn in the first person and an indenture always in
the third person.
Deeds poll generally commence with:
“Know all men by these presents”,
If, there are no recitals, then with:
“To all whom these presents shall come Greeting.”
If there are recitals, the date is written at the end of the deed in the
testimonium clause, thus:
“IN WITNESS WHEREOF I, the said................. have hitherto set my hand
this................. day of................”.
The form in which deed poll and other deeds (hitherto known as indentures)
are drafted will be given later under appropriate headings and the exact
requirements of such forms will be dealt with in the preliminary notes. The most
common and important transactions for which deeds are required are those of
various kinds of transfer of immovable property. The general requirements of all
deeds of transfer are dealt with in the next part.
Figures and Words
Date, sums and numbers should, in order to avoid mistake, be preferably
stated in words or in words as well as in figures.
General requirements of deed of transfer
In this part it is proposed to deal with the general requirements of all deeds
of transfer and to notice the various clauses, of which a deed of transfer is
generally composed, and to show in what way each clause should be framed. The
particular and special requirements of particular kinds of transfer deeds and any
modifications necessary in the case of a particular kind of transfer will be noticed
in the “preliminary note” to the precedents relating thereto.
Division of Deed
Drafts, Forms, Precedents—A Preliminary Note
5
An ordinary deed of transfer may conveniently be divided into the following
parts:
Description of the deed; Date; Parties; Recitals; Testatum; Consideration;
Receipt; Operative words; Parcels; Exceptions and Reservations (if any);
Habendum; Covenants (if any); Testimonium.
The part of the deed, which precedes the habendum, is termed “the
premises”1. Each of these parts will now be separately considered.
(a) Description of the deed
Although the necessity of indenting was abolished long ago in England by sec.
5 of the Real Property Act, 1845, which section was later replaced by sec. 56 of
the Law of Property Act, 1925, deeds are still sometimes described as indentures,
such is the conservatism of English lawyers! Sec. 57 of the Law of Property Act,
1925 provides that a deed may be described as a deed simply according to the
nature of the transaction. In some of the latest books on conveyancing this has
been followed and the word “indenture” has been discarded.
In India there never was any reason for calling a deed “indenture”, but as
solicitors generally copied the English style of conveyancing the word has come
to be adopted here also. All deeds should now be described by the name of the
transaction which they evidence, such as “THIS DEED OF MORTGAGE”, “THIS
DEED OF SALE”, “THIS LEASE”, “THIS DEED OF GIFT”, etc. When the deed is
of a complex character and evidences different transactions known by different
legal names, or the conveyancer is not sure what name should properly be given
to it, it would be best to describe it simply as ‘THIS DEED”. This description is
usually written in capitals.
(b) Date
After the description of the deed is stated, the date on which it is executed,
thus:
“THIS LEASE made on the .......... day of February, one thousand nine
hundred and ninety nine”.
The date is, strictly speaking not an essential part of the deed and a deed is
perfectly valid if it is undated or the date given is an impossible one, e.g. the 30th
day of February, and if no date is given, oral evidence will always be admissible
to prove the date of execution if it becomes necessary to determine it. It is,
however, always a matter of great importance to know the date from which a
particular deed operates. In India, as there is a short period of four months
(sec. 23, Registration Act, 1908) from the date of execution within which a deed
which requires to be registered must be presented for registration, the date of
execution is always the first matter for inquiry by the registering officer. Similarly,
1. Black’s Law Dictionary (1992 Edn.) defines “premises” (in conveyancing) as “that part
of deed which precedes the habendum, in which are set forth the names of the parties
with their titles and additions, and in which are recited such deeds, agreements, or
matters of fact as are necessary to explain the reasons upon which the present
transaction is founded; and it is here, also, the consideration on which it is made is set
down and the certainty of the thing granted.”
6
Corporate and Commercial Agreements
in the case of a deed of transfer of land in respect of which mutation of names
is necessary, the date of execution is ascertained for mutation purposes. The date
is further important for the purposes of the application of law of limitation. In view
of the extreme importance of the date of execution, and of the great risk in leaving
the same to be determined by oral evidence, a deed should always be dated, and
this should be regarded as an essential requirement.
The date of a deed is the date on which it is signed by the party or parties
executing it. When there is only one party to a deed, as in the case of deed poll,
or when all the parties sign it on one and the same date, or when, though there
are several parties to a deed, all do not sign and those who sign do so on one
date, there is no difficulty. But if several parties to a deed sign it on different dates,
the question is which date should be entered as the date of deed. The practice is
to regard the last of such dates as the date of the deed. This does not, however,
seem to be universally correct as there might be parties who execute a deed only
for the sake of the formality and the deed operates even without their signature.
For example, in the case of a sale deed the transfer operates on its execution by
the vendor and without the purchaser’s signature on the deed, or when a person
is impleaded as a party to a deed simply in order to give him notice of the
transaction to obtain his consent though such consent is not legally necessary to
validate the transaction. In all such cases the dates on which such persons sign
the deed may be discarded from consideration, because the date of deed is really
the date on which the deed operates.
The date should, in order to avoid mistake and risk of forgery, be written in
words and not in figures. Figures may be added within parenthesis, if desired
thus—
“The ..... day of ....., two thousand ...................”
In every case in which a deed is executed by more than one person, the date
on which each signs the deed must be shown in the deed, preferably against his
signature.
(c) Parties to the deed
(i) Transferee: After the date, the names and description of the parties to the
deed are mentioned. Who are the necessary and proper parties to a deed depends
on the circumstances of each case. In England, the custom is to make both the
transferor and the transferee parties to all deeds of transfer. This was necessary
in former times as no person could take an interest under an indenture who was
not named as a party therein but since the passing of the Real Property Act, 1845
(later replaced by the Law of Property Act, 1925) an estate or interest in any
property and the benefit of a condition or covenant respecting the same may be
taken, although the transferee is not named as a party (see sec. 5 of the 1845
Act now sec. 56 of the 1925 Act). The practice of naming the transferee as a party,
however, still continues. In India, except in the case of leases which, under section
107 of the Transfer of Property Act, 1882 require to be executed both by the lessor
and the lessee, the transferee is not a necessary party to any deed of transfer,
and in the forms used in Indian languages transferees are not normally named as
Drafts, Forms, Precedents—A Preliminary Note
7
parties and do not execute the deeds. But in all cases where
any covenant has to be made by the transferee also, he becomes a necessary
party.1
(ii) Third Person: Sometimes, it is necessary or expedient, in order to validate
a transfer or to give a complete title to the transferee, or to avoid possible disputes
or doubts in that regard, to obtain the consent or concurrence of a third person.
In such cases, such third person may also be joined as a party. For instance, prior
to the enactment of the Hindu Succession Act, 1956 [sec. 14(1), a reversioner
used to be joined in the case of a transfer by a Hindu widow of absolute title in
her husband’s property. Again in the case of sale of lessee’s right the lessor may
be joined if the lessee has no power to transfer his rights without the lessor’s
permission. (Such permission is generally required under rent control laws; its
absence may result in the lessee forfeiting his protection under such laws].
Sometimes other persons also make some covenants in the deed and are joined
for this purpose. In all such cases the transferor is placed first, any person whose
concurrence is necessary or who enters into any covenant comes next, and the
transferee last. If different portions of the estate transferred are owned by different
persons as the mortgagor and mortgagee, lessor and lessee, reversioner and life
owner and full estate is transferred by all such persons, the person who has the
legal estate should be placed first, and those who have the equitable estate next.
(iii) Description : Full description of the parties so as to prevent difficulty of
identification should follow the name. In India, parentage, occupation and
residence including municipal or survey number, street and city and in the case
of resident of a rural area the village, sub-division, tehsil and/or development block
are generally regarded as sufficient to identify a man, but if there is any other
description which is sufficient, the same may be normally adopted. It should not
be considered necessary to specify the caste or religion as it is desirable to
discourage emphasis on communal or caste distinctions in our republic. But where
the transferor is a member of a scheduled caste or scheduled tribe for whose
protection the statute places restrictions on his right to transfer it may be
necessary to mention such caste or tribe while reciting the fact of permission for
the transfer having been obtained from the competent authority.
(iv) Juridical person : A party to a transfer need not be a living
individual but may be a company, or association or body of individuals (sec. 5 of
Transfer of Property Act, 1882), or an idol2 or a corporation sole or
aggregate.1 or in fact any juridical person capable of holding property and entering
into contracts. A court is not a juridical person capable of holding property or
entering into contracts, and security bonds which are given to courts must,
1. In this context, see “Covenants and undertakings”, post.
2. Bhopatrao v. Shri Ram Chandra, 96 IC 1004; see Angurbala v. Debabrata, AIR 1951 SC 293
(In all Hindu religious endowment the entire ownership of the dedicated property is
transferred to the deity or the institution itself as juristic person, and the shebait or
mahant - unlike a trustee under the English Law in whom the property vests for the
benefit of cestui que trust - is mere manager).
8
Corporate and Commercial Agreements
therefore, be made in favour of a named officer of the court and not in favour of
the court.2 Care should be taken that companies, associations and corporations
are described by their correct names. It is better also to refer to the Act under
which they are registered or incorporated thus:
“.................... (name), a company within the meaning of the Companies
Act, 1956, and having its registered office at ....................”
“.................... (name), a society Registered under the Societies
Registration Act, 1860;
“.................... (name) a body incorporated under the U.P. State Universities
Act, 1973”.
(v) Idol: As an idol has to act through some natural person3 , the name of the
latter should be disclosed, thus:
“The idol of .................... (name) installed in the temple at ....................
(place), acting through its .................... (name), son of ....................
(name) of ....................”.
(vi) Persons under disability: Persons under disability (namely minors, persons
of unsound mind and persons disqualified from contracting by any law to which
they are subject) cannot enter into a contract and cannot therefore transfer
property (See sec. 7 of the Transfer of Property Act read with secs. 11 and 12 of
the Contract Act and sec. 3 of Majority Act)4. They cannot by themselves even
take a transfer, if the same involves entering into any covenant, as all contracts
made by them are void. But if no promise is made by the person under disability
as a consideration of the transfer or where there remains nothing for the minor to
do there is nothing to make the contract unenforceable at his instance.5 However,
some statutory obligations attach to a transferee even in the absence of a specific
covenant on their part, e.g. in Transfer of Property Act, sec. 55(5) in a case of sale
and sec. 109 in a case of lease. Thus a lease in favour of a minor is not
enforceable even at his instance if he himself and not his guardian is the
1. Board of Trustees, Ayurvedic and Unani Tibia College v. State of Delhi, AIR 1962 SC 458 (para
9). A company is a Corporation aggregate (sec. 34, The Companies Act, 1956); it has a
legal personality distinct from its shareholders (Charanjit Lal v. Union of India, AIR 1951
SC 41 para 43). For illustrations of corporation sole see the Administrators - General Act,
1963 (sec. 5) and the Charitable Endowments Act, 1890 (sec. 3). Universities, State
Electricity Boards, Life Insurance Corporation of India and nationalised banks are
instances of corporation aggregate.
2. Raghuber Singh v. Jai Indra Bopander Singh, AIR 1919 PC 55: ILR 42 All 158 (See precedent
No. 10 under BOND).
3. Angurbala v. Debabrata, AIR 1951 SC 293.
4. See discussion of case law in Manik Chandra v. Ram Chandra, AIR 1981 SC 519: (1980) 4
SCC 22.
5. Raghava Chariar v. Srinivasa, 1917 (40) Mad 308 (FB) (if minor has fulfilled his part of the
contract the other party cannot resist its enforcement on the ground of voidness); Zafar
Ahsam v. Zubaida Khatun, 1929 (27) All LJ 1114; Bhaggabhor Mandal v. Mohini Mohan, AIR
1918 Cal 1027; Daniel v. Mariamma, AIR 1951 Mad 466; Bholanath v. Balbhadra, AIR 1964
All 527; The Great American Insurance Co.v. Mandanlal, 1935 (59) Bom 656 (per Beaumond
C.J.).
Drafts, Forms, Precedents—A Preliminary Note
9
executant.1 Sec. 68, Contract Act lays down an exception to the effect that a
person who supplies necessaries to a person under disability is entitled to
reimbursement from the latter’s property.
(vii) Minors: Minors are persons, male or female who are below the age of 18
years. If, however, a guardian has been appointed or declared by court for him
before his attaining that age, the minor does not attain majority until, he is 21. A
transfer of his immovable property can (except short-term lease for which no
permission is required, as hereinafter stated) be made by his natural guardian or
guardian appointed by Will or other instrument or appointed or declared by the
court under the Guardians and Wards Act only with the permission of the court.
Even for transfer of movables or for lease for a short-term it is necessary that the
transfer should be for the benefit of the minor or for the realisation, protection or
benefit of his estate and that there should be no personal covenant binding the
minor. The powers of a testamentary guardian may be further restricted by the
terms of the Will (sec. 28, Guardians and Wards Act).
The usual form is…
“AB, a minor, acting through CD his guardian:
The authority of the guardian should be either recited in the recital, thus:
“The Vendor is a minor and the said CD is the certificated guardian of his
property appointed by order of the District Judge of .................... dated…..”
Or it may be shortly stated in the heading itself thus:
“AB, a minor, acting through CD his guardian appointed by the District
Judge, ...................., by order dated….”
Or “AB, a minor, acting through his father and natural guardian CD:”
In case of transfer of a minor’s property the circumstances which gave the
guardian or Karta power to make the transfer should be mentioned in the recitals,
e.g. in case of natural guardian or manager of a Hindu family, the legal necessity
of the transfer (except a lease for a period not exceeding five years) without the
sanction of the court (sec. 29, Guardian and Wards Act). The powers of a natural
guardian of a Hindu minor are now defined in sec. 8 of the Hindu Minority and
Guardianship Act, 1956. In fact, it gives statutory recognition to certain powers
enjoyed by natural guardian under the Old Hindu Law. Under that provision the
natural guardian shall not mortgage or charge or transfer by sale, gift, exchange
or otherwise any part of the immovable property of the minor, or lease any part
of such property for a term exceeding five years or for a term exceeding more than
one year beyond the date on which the minor will attain majority, except with the
previous permission of the court. Such permission should be referred to in the
recitals thus:
“The District Judge of .................... has by order dated.. in miscellaneous
case no…. of … permitted the said AB to make the said sale.”
If the guardian in his personal capacity also joins in making a conveyance the
two may be described thus:
“AB acting for himself and as guardian of CD, a minor”, or
1. Jaykant v. Durgashankar, AIR 1970 Guj 106.
10
Corporate and Commercial Agreements
“AB etc. and CD etc. a minor acting by his guardian the said AB”.
A transfer of immovable property by a guardian in contravention of sub-sec.
(1) or sub-sec. (2) of sec. 8 of the Hindu Minority and Guardianship Act or sec.
28 or sec. 29 of the Guardians and Wards Act is voidable, at the instance of the
minor or any person claiming under him. The other party as well as a minor,
however, can enforce a contract for sale of property entered into by a natural
guardian if the contract is for the benefit of the minor. 1 The restriction imposed
under sec. 8 is against alienation of minor’s property by a natural guardian but the
latter can purchase any property without court’s permission if the purchase is for
the minor’s benefit.2
(viii) Mentally ill Persons: A mentally ill person means a person who is in need
of treatment by reason of any mental disorder other than mental retardation. A
manager appointed by the court can alone transfer such person’s property with the
permission of the court (sec. 59, Mental Health Act, 1987). The above-mentioned
directions about guardian of a minor apply to the manager of the property of a
mentally ill person as well.
(ix) Insolvent: The property of an insolvent vests in the official assignee in the
presidency towns and in the official receiver elsewhere, and the official assignee
or the official receiver alone can transfer it (sec. 68, Presidency Towns Insolvency
Act, 1909 and sec. 59 of the Provincial Insolvency Act, 1920).
As the property vests in the official receiver (sec. 56) or the official assignee
(sec. 51), the transfer should be made by him in his own name, and the fact of
the insolvency of the owner and the vesting of the property in the transferor should
be mentioned in the recitals.
(x) Trustees: If a property vests in trustees, the transfer should be by the
trustees themselves in their own name, as
“AB, CD and EF trustees of the estate of XY”.
The facts showing the estate came to be vested in the trustees should be
mentioned in the recitals.
The powers of trustees in regard to transfer of trust property depend on the
terms of the trust deed. See precedents of “Miscellaneous Clauses and Conditions
of Trust” under TRUSTS, post.
(xi) Hindu Coparcenary: The manager or Karta may execute the deed in his
name alone or all members of the Coparcenary may join it. In either case the fact
of the property being joint family property should be mentioned in the recitals. See
“(d) Recitals”, post.
(xii) Attorney : An attorney may be made party either in his own name (sec.
2, Power of Attorney Act, 1882), thus:
“AB attorney of CD”.
1. Manik Chand v. Ram Chander, AIR 1981 SC 519.
2. Than Singh v. Barelal, AIR 1974 MP 24.
Drafts, Forms, Precedents—A Preliminary Note
11
Or the name of the principal may be shown as a party, thus:
“CD acting by his attorney AB”
The latter form is preferable.
(xiii) Firm : Every partner has, under sec. 19 of the Partnership Act, 1932, an
implied authority to bind the firm by acts done to carry on the business of the firm
in the usual way. In case of emergency a partner may do any reasonable act (sec.
21). The acts mentioned in sec. 19(2) including transfers of immovable property
must be done by all the partners; other acts done and instruments executed by
one partner must be done and executed by him in the firm’s name or in any other
manner expressing or implying an intention to bind the firm
(sec. 22). Thus:
“AB, etc., a partner of and acting for and on behalf of the firm carrying on
business under the name and style of – (firm’s name)”.
“Firm - acting through AB, etc., its managing partner”.
It may, however, be added that strictly speaking, a firm unlike a corporation,
is not a juridical person,1 and only its partners are juridical persons. Hence if it
is desired to execute a deed of transfer in the firm name it should be ensured that
the deed is signed either by all its partners or by a partner holding a power of
attorney on behalf of all partners. As regards sec. 19 it is to be noted that it does
not confer an implied authority on any partner to buy or sell property for or on
behalf of the firm. Commercial agreements may, however, be entered into by the
managing partner in the ordinary course of business.
(xiv) Government: Contracts made in exercise of the power of the Union and
all assurances of property vested in the Union are to be expressed in the name
of the President while those relating to a State are to be made in the name of the
Governor2 of that State, as laid down by Article 299(1) of the Constitution.
Notifications under Article 299(1) authorizing Secretaries of the various Ministries
of the Government of India and the Secretaries to Governments of the various
departments in the States as well as some heads of department and various other
officers for entering into contracts or executing assurances of property on behalf
of the President or the Governor, as the case may be, have been issued from time
to time.
If the contract or transfer is not made in accordance with Article 299 of the
Constitution, it is void.1 Such a contract is not capable of being ratified, nor does
estoppel become applicable, nor can there be implied contract between the
Government and another person.2 A formal contract in accordance with Article 299
1. See Dullichand v. CIT, AIR 1956 SC 354.
2. While the agreement or the deed of lease, sale etc., may at the outset mention the
President or the Governors so that it may be expressed in his name it is customary to
add within brackets the words “(hereinafter called the Government of India the State
Government, the said Government)”, as the case may be, so that the office of the
President or the Governor may not have to be referred to repeatedly in subsequent
clauses. It is sufficient to give it only in the beginning for fulfilling the constitutional
requirement. See e.g., the agreement quoted in Laminar v. Telecom, Dist. Manager, AIR
1998 Kant 67 (Para 5).
12
Corporate and Commercial Agreements
is however, necessary only when Government acts in its Executive capacity and
not when a particular statutory authority, as distinguished from the Union or the
States, enters into contract in exercise of a statutory power, such as a contract
whereby a licence is granted for vend of liquor after acceptance of bid at an
auction under the relevant State excise law,3 unless the statutory provision itself
contemplates or requires that a formal deed between the contractor and the
Government be executed.4 Moreover, absence of a formal contract with
Government or a public corporation will not stand in the way of a citizen pleading
promissory estoppel against the Government or such corporation on the basis that
on the assurance or promise made by the latter he has acted to his prejudice.5
Estoppel is however inoperative to defeat a statutory obligation of an unconditional
character. Invalidity based on public policy is a good defence to the objection of
consent.6
It is well settled that Article 299 does not by itself prohibit a contract with
Government coming into existence without a formal deed as it can,
notwithstanding the use of the word “executed” in that Article, result from
correspondence between an authorised officer of Government, acting expressly on
behalf of Government, and a private party, e.g., when a tender for purchase of
goods in pursuance of an invitation issued by or on behalf of Government is
accepted in writing by the authorised officer on behalf of Government.7
However, as clause (1) of Article 299 adds that all such contracts and all
assurances of property shall be executed on behalf of the President or the
Governor by such persons and in such manner as he may direct or authorise, it
is open to the Government concerned to direct that contracts of a specified class
shall be made only through formal deed. Even in the absence of a valid contract,
where a party has done something for or supplied something to the Government
under an informal agreement and the Government has taken advantage thereof,
the latter can be required to compensate the other party (the former) under
sections 65 and 70 of the Contract Act.1
(xv) Reference Labels of Parties: In order to avoid the repetition of the full
name and description at every place, the parties are generally referred to in the
1. Bihar Fisherman Society v. Sinai Singh, 1977 (4) SCC 145; Bhikraj Jaipuria v. Union of India,
AIR 1962 SC 113: 1962 (2) SCJ 479: (1962) 2 SCR 880; State of W. Bengal v. B.K. Mandal,
AIR 1962 SC 779; State of UP v. Murari Lal and Bros., AIR 1971 SC 2210: 1971 (2) SCC 449,
Union of India v. N.K. Private Limited, AIR 1972 SC 915: 1973 (1) SCJ 107; K.P. Chowdhry
v. State of MP, AIR 1967 SC 203; K.N. Vidhyadharan v. State of Kerala, AIR 1980 Ker 212.
2. Mulchand v. State of MP, 1968 (3) SCR 214: AIR 1968 SC 1218; State of Haryana v. Lal
Chand, 1984 (3) SCC 634 (para 10).
3. State of Haryana, supra (para 10).
4. K.P. Chowdhry, Supra: Mulchand, supra; (distinguished on this ground in State of Haryana,
supra, para 11).
5. Motilal Padampat Sugar Mills v. State of U.P., AIR 1979 SC 621: 1979 (2) SCC 409; Gujarat
S.F.C. v. Lotus Hotel, AIR 1983 SC 848: 1983 (3) SCC 379; Union of India v. Godfrey Philips,
AIR 1986 SC 806; State of Bihar v. Usha Martin Industries Ltd., 1987 (Supp) SCC 710.
6. Union Carbide Corporation v. Union of India, 1991 (4) SCC 584 (para 107).
7. Union of India v. A.L. Rallia Ram, AIR 1963 SC 1685.
Drafts, Forms, Precedents—A Preliminary Note
13
body of the deed by some easy and convenient names, which generally have
reference to the character in which they join in the deed, such as “the vendor”, “the
purchaser”, “the lessor”, and “the lessee”. In England, in order to avoid mistakes
in writing words resembling each other for opposite parties, e.g., a combination of
“mortgagor” and “mortgagee” or vendor” and “vendee”, they prefer to use a
combination of “borrower” and “mortgagee” or “vendor” and “purchaser”. If no such
name is adopted, the parties can be referred to as “the party of the first part” (or
“the first party”), “the party of the second part” (or “the second party”), “the said
AB”, “the said CD”, but it is always preferable to give each party some short name
for reference. Whatever short name is adopted the party should be referred to
throughout by the same name.
The form, in which the Parties will describe in the beginning of the deed would
thus be as follows:
“This SALE DEED is made on the ……… day of ……… between AB, etc.
(hereinafter called the “the vendor”) of the one part and CD, etc. (hereinafter
called “the purchaser”) of the other part”.
If the transferor alone is made a Party, this clause will run as follows:
“This SALE DEED is made on the……… day of……… by AB etc.
(hereinafter called ‘the vendor’)”
Of there are more than two Parties instead of the words “of the one part” and “of
the other part” the words “of the first part”, “of the second part”, “of the third part”,
etc., should be used.
(d) Recitals
Recitals are of two kinds: (1) Narrative recitals, which relate the past history
of the property transferred and set out facts and instruments necessary to show
the title and the relation of the parties to the subject matter of the deed; and (2)
Introductory recitals, which explains the motive for the preparation and execution
of the deed.
(i) Narrative recitals : If the transferor is an absolute owner of the property
transferred, his title and the mode in which he acquired it need not generally be
recited, but when he is not an absolute owner, recitals showing the extent of his
interest and the title under which he holds it, will be necessary. So also when the
transferor transfers under some power given to him by another instrument or by
any special law, such instrument or law must be recited, e.g., in the case of a
transfer by a guardian of a minor, the fact of his appointment as such guardian
by a deed or order of court and in the latter case, the fact of his having obtained
the permission of the court to make the transfer, must be recited. Similarly, in a
transfer of leasehold or mortgagee rights, the lease or mortgage under which the
transferor holds should be recited. When the transferor is authorised to transfer
only in certain circumstances, it would be advisable to narrate those
circumstances in the recital to avoid future disputes, although their omission in the
1. State of West Bengal v. B.K. Mondal, AIR 1962 SC 779: (1962) Supp (1) SCR 876; New
Marine Coal Co. v. Union of India, AIR 1964 SC 152.
14
Corporate and Commercial Agreements
recital cannot estop the transferee from proving them if the transfer is impugned.
For instance, in case of a Karta of a Hindu Coparcenary he should better recite
the legal necessity for which the transfer is being made.
(ii) Introductory recitals : Among the introductory recitals, which come after the
narrative recitals, the chief one is of the agreement, which the deed is intended
to give effect to. If the agreement is in writing, it is not necessary to give
particulars of the date and place of such agreement but it may be expressed in
brief and general terms. Any other recitals, which may be necessary to connect
the narrative recitals with the rest of the deed by showing why and how, the state
of things previously existing is about to be altered by the deed should also be
entered.
Caution
Recitals should be inserted with great caution because they may control the
operative part of the deed if the same is ambiguous, and may operate as estoppel
by estopping the parties and their representatives from showing the existence of
a different state of things from that stated in the recitals. In any case, they may
be good evidence of the facts recited, either as admissions under sec. 21 or as
substantive evidence under section 32 or corroborative previous statements under
sec. 157 of the Evidence Act, though as admission they are not ordinarily
admissible in evidence against persons not parties to the document.1 If, however,
the operative part of the deed is clear and unambiguous nothing contained in the
recital will control it. Persons drafting should therefore take the greatest care to
avoid unnecessary recitals and to ensure that all recitals are both correct and
judicious. The tendency of the modern conveyancers is to do away with recitals,
and in simple cases of sale, lease or gift no recitals are generally needed. But
recitals are necessary whenever the deed itself does not clearly imply for what
purpose any person joining in it is made a party or whenever the covenants into
which he enters show that he has only a qualified interest in the property
transferred. It is unnecessary to recite conclusions of law or negative events.
Order of Recitals
If it is necessary to have numerous and lengthy recitals, they should be
inserted in chronological order. In the case of narrative recitals, the different
instruments and acts, which ultimately result in vesting the property in the
transferor, should be recited in strict, chronological order. When the property comes
to the transferor partly under one and partly under another title, each title should
be traced separately and in chronological order.
Facts and events contained in the introductory recitals also should be inserted
in the sequence in which they have happened or occurred.
Form of Recitals
Recitals generally begin with the word “Whereas”, but, when there are several
recitals, one can either repeat the word before every one of them, by beginning
1. Abdur Rahim Khan v. Fakir Md. Shah, AIR 1946 Nag 401: ILR 1946 Nag 518.
Drafts, Forms, Precedents—A Preliminary Note
15
the second and subsequent ones with the words “And whereas”, or divide the
recitals into numbered paragraphs with the word “Whereas” at the top thus:
“Whereas—
1
2
3
etc.,”
(e) Testatum
The next division of a deed consists of the operative part. It commences with
a witnessing clause termed the ‘testatum”, which refers to the introductory recitals
of the agreement (if any) and also states the consideration (if any) and recites
acknowledgement of its receipt. The witnessing clause usually begins with the
words “Now this deed witnesses”. These words of testatum are of no importance
as affecting the operation of the deed and their sole use is to direct attention to
the object, which the deed is intended to effect. If the deed is intended to serve
several objects, use the words “as follows” after the testatum, thus:
“Now this deed witnesses as follows:
1
2
3
4
etc.”
(f) Consideration
As contracts are necessarily for consideration (sec. 10 of the Contract Act),
it is advisable to express the consideration. This is necessary in many cases of
transfer for ascertaining the stamp duty payable on the deed as sec. 27 of the
Indian Stamp Act requires that the consideration should be fully and truly set forth
in the deed. The penalty for omission to comply with this requirement is fine, which
may extend to Rs. 5,000 (vide sec. 64).
(g) Receipt
Acknowledgment of receipt of consideration may be embodied in the deed
itself instead of passing a separate receipt. Thus:
“now this deed witnesses that in pursuance of the aforesaid agreement and
in consideration of Rs.………… paid by the purchaser to the vendor before
the execution hereof, the receipt of which the vendor hereby acknowledges.”
(h) Operative words
Then follow the real operative words, which vary according to the nature of the
estate and of the transaction. What words are necessary in a particular kind of
transaction will be dealt with in the preliminary note to the precedents relating to
that kind of transaction.
16
Corporate and Commercial Agreements
(i) Parcels
This is a technical expression meaning description of the property transferred
and it follows the operative words. Care must be taken, on the one hand, to include
in the particular or in general words, all the lands, etc., which are intended to pass
so that no doubt may arise as to the extent and operation of the deed; and, on
the other hand not insert words which will pass more than what is intended. If the
description is a short one, it may be given in the body of the deed in full but if
it is a long one it is better to give it in details in a schedule at the foot of the deed,
describing it shortly in the body of the deed and referring to the Schedule, thus:
“The house known as Glenco and situated at Nainital and fully described
in the Schedule hereto”
The practice of entering the full description in a schedule is a convenient one
and should generally be followed as it makes the reading of the deed easier and
clearer.
Map: Sometimes it is necessary to have a map or a plan of the property in
order to avoid mistake about its identity and to indicate the actual property
conveyed with greater definiteness and precision. In such cases such plan or map
should be appended to the deed and referred to in the parcels, stating how the
property transferred has been shown on it, e.g., by being coloured, or by coloured
boundaries or by letters, etc., thus:
“Which land is for greater clarity (or, by way of further identification),
delineated on the plan annexed hereto and thereon shown as coloured red
(or, with its boundaries coloured blue), (or, thereon marked with letters
ABCDE)”.
It is always desirable to make it clear whether the description in the deed
controls the plan or vice versa. The words “for greater clarity” or “by way of further
identification” are added to indicate that the description controls the plan. If plan
is intended to control description, we may say thus:
“All that portion of the compound of house known as No. ....................,
which is indicated by letters ABCD on the plan annexed hereto and which
contains an area of 1500 sqm. approximately.”
A map referred to in a transfer deed is treated as incorporated in the deed,
and if it is drawn to scale and demarcates the boundaries clearly it is not
permissible to attempt to correct them with reference to revenue records.1
Great care should be taken in describing the property, as a slight mistake or
omission may cause immense loss to a party and if the property is described both
in the body and the Schedule, a conflict between the two should be carefully
avoided.
In English conveyancing, different technical words are used to denote different
kinds of property. For example:
(i) Messuage denotes a dwelling house without houses and gardens.
(ii) Tenement property means land and anything, which is subject to tenure
1. K.S. Nanji & Co v. Jatashankar, AIR 1961 SC 1474.
Drafts, Forms, Precedents—A Preliminary Note
17
but is generally used as equivalent to a messuage.
(iii) Hereditament applies to all interests in land.
(iv) Land includes not only the surface of earth but everything under it or
over it such as mines, woods and houses.
(v) Water is used to denote only the right to water and not the land it covers
while ‘pool’ cover both water and the land.
In India, however, there is no need to use such technical words. Instead,
words of ordinary use which are commonly understood, such as, land, house,
trees, etc., should be used, and so long as the description is sufficient to show
with certainty what the subject matter of a conveyance is, it is of no concern what
words are employed, but care should always be taken that the whole interest
conveyed is clearly and fully described.
General words: After a specific description of the property conveyed, there
formerly came what were known as the “general words” giving minute details of the
easements and legal incidents intended to be conveyed, but this is unnecessary
in India in view of the provision of sec. 8 of the Transfer of Property Act.
Sec. 8 is subject to a different intention expressed or necessarily implied.
Hence if it is intended to exclude any easement or legal incident it should be
expressly mentioned. Likewise if it is intended to include in the transfer any right
the inclusion of which is not implied by these provisions, the same should be
specifically mentioned, e.g., if a garden attached to a house is transferred with the
house, the same should be specifically mentioned. No fixed rule can be laid down
as to how a particular kind of property should be described in the parcels, but care
should be taken that the description used is full, sufficient, precise, definite and
unambiguous.
As laid down in sec. 3, Transfer of Property Act, standing timber,
growing crops or grass are not included in immovable property, hence if they are
also to be transferred specific mention should be made in that behalf.
The following are the particulars usually necessary for the description of
different kinds of property in India—
Agricultural land: The numbers and areas of the plots, and the names
of the village, pargana, tahsil and district should be given. The tenure
on which the land is held, with the amount of revenue, if any, fixed
on the land should be given. If the land is a part of a plot, the area transferred
and its position with reference to a map (to be annexed to the deed) should be
clearly stated and, if possible, boundaries may also be given.
Non-agricultural land: The exact situation, area and boundaries of the land
should be given. If any number is assigned to it in municipal or village register,
the same should also be given.
House: Should be described by its name, if any. The number of the house, if
there is one, and the name of the street in which it is situate should also be given
as well as its boundaries. If there are any separate out-houses, stables, garages
or gardens or open land attached to it, the same should be mentioned unless the
description of the house as given in the deed is wide enough to include them.
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Corporate and Commercial Agreements
Sometimes the area of the land is also given. If house alone is transferred (and
not the land covered by it, e.g., when the land belongs to another person), the fact
should be made clear in the deed, by adding the words “but without the land
occupied by the said house” after the description of the house. Sometimes the
length and breadth of the house or of the whole compound are also entered. It is
not necessary to mention specifically the fixtures and fittings of the house, e.g.,
doors, windows, etc., and other things provided for permanent use therewith, nor
any easement annexed to it (sec. 8 of the Transfer of Property Act), but if there
are any machineries fixed in the house and they are included, they should be
specifically mentioned.
Trees: Pass with the land on which they stand, but if they are separately
transferred, they should be described correctly by their position and their species.
Grove: The name, if any, with the correct position of the grove and the number,
if any, in village or municipal registers should be given. The area and the
boundaries should also be mentioned.
Area: Wherever area is given, care should be taken that it is correct. To be on
the safe side, it is advisable that after the area the word “approximately” or the
words “more or less” may be added so that there may not be any trouble if the
area is found to be incorrect.
The normal rule is that in case of conflict, a description by fixed boundaries
should be preferred to a description by area, which would be rejected as false
demonstration1 . Where, however, in a deed the boundaries of the land conveyed
and the area marked in the plan disagreed but the parties had always treated the
area marked in the plan as the truce area conveyed, this conduct of the parties
was held to be relevant for upholding the plan in preference to the boundaries
recited.2 The boundaries stated in the description of the property at the foot of the
deed should be read along with the document as a whole including any plan
annexed thereto and also, if two conveyances have been simultaneously executed
in respect of adjacent properties, the terms of the other conveyance so executed
simultaneously.
Description of the property to be conveyed should, as far as practicable, be
the same as in former title deeds. If the description in former title deeds is found
to be wrong or has been changed owing to change of circumstances, the correct
present description should be given and a reference may, if necessary, be made
connecting the parcels with the former description, thus:
“The house now known as .................... (name) situate at ....................
(place) which was formerly known as .................... ”.
For forms of parcels see under general forms post.
(j) Exceptions and reservations
All exceptions and reservations out of the property transferred should follow
1. Plestin KAB Co-op Society v. Govt. of Palestine, AIR 1948 PC 207.
2. Watchman v. Attorney General of East Africa Protectorate, (1919) AC 533 PC; referred to
with approval in Godhra Electricity Co. v. State of Gujarat, (1975) 1 SCC 199 (para 13).
Drafts, Forms, Precedents—A Preliminary Note
19
the parcels.
An exception is something in existence at the date of transfer which, if not
expressly excepted, would pass the property as described in the parcels, such as
trees.
A reservation is something not in existence at the date of the transfer but is
newly created by the grant, e.g., when the vendor reserves a right of way over the
property. But since both “excepting and reserving” are used in practice it is
immaterial whether what follows is an exception or a reservation.
Strictly speaking, as a reservation operates as a new grant by the transferee
to the transferor, deed should be executed by the transferee also, otherwise on
reservation of an easement no legal easement is created but only an equitable
right.1
(k) Habendum
This is the familiar “to have and to hold” (in Latin, habendum et tenendum)
clause of the English precedents. In India such phrases as “to have and hold” or
such an expression as “to the use of the purchaser” are not strictly necessary but
there is no harm in continuing the established practice.
See Preliminary Notes to SALE, post on “Habendum, when Several
Purchasers”.
(l) Covenants and undertakings
If, the Parties to a transfer enter into covenants, such covenants should be
entered after the Habendum. While drafting covenants, regard should be had to the
statutorily implied covenants, which operate subject to any contract to the
contrary. For instance, sec. 55 (sale), secs. 65 and 67 (mortgage), sec. 108 (lease)
of the Transfer of Property Act should be kept in mind.
Where several covenants follow each other, they may run on as one sentence,
each being introduced with the words “and also” or by the words “First”, “secondly”
etc. or they may be sent out in paragraph form with the heading:
“The vendor hereby covenants with the purchaser as follows:—”
It is better to put in the transferor’s and the transferee’s covenants
separately, and any covenants separately, and any covenants mutually
entered into by the parties with each other may be inserted separately. If
the transferor’s and transferee’s covenants are separately mentioned in the
deed, care should be taken that no covenant which should really be the
covenant of one party is entered in the covenants of the other. For example,
if a lessee is given the right to cut trees of a certain kind and not to cut
trees of a different kind, the latter covenant is a covenant by the lessee and
the former is a covenant by the lessor and both should not be inserted in
one covenant by either. When it is found inconvenient or awkward to split
up, what really is one covenant into two parts, it is better to insert such
a covenant as a mutual covenant by the Parties.
1. May v. Beloona, (1905) 2 Ch 605.
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Corporate and Commercial Agreements
Sometimes the terms and conditions of a transfer cannot be conveniently
separated into transferor’s covenants and transferee’s covenants. In such cases,
it would be better to include all the covenants under one head as parties’
covenants thus: “The parties aforesaid hereto hereby mutually agree with each
other as follows:
(m) Testimonium
The last part of a deed is the testimonium, which sets forth the fact of the
parties having signed the deed. This is not an essential part of the deed, but as
it marks the close of the deed there is no harm in continuing the established
practice. The usual English form of testimonium is as follows:
“In witness whereof the parties hereto have hereunto set their respective
hands and seals the day and year first above written”.
The use of seal is not common in India except in cases of companies and
corporations, and the proper form in simple language would be somewhat as
follows:
“In witness where of the parties hereto have signed this deed on the date
first above written.”
(n) Signatures and attestation
After testimonium should allow the signatures of the executants and those of
attesting witnesses. If the executant is not competent to contract or is a juristic
person, the deed must be signed by the person competent to contract on his or
its behalf. Thus if the deed is executed:
(i) on behalf of a minor or a mentally ill person it must be signed by his
natural guardian or where a guardian has been appointed by a competent
court, then by such guardian, as guardian of …..;
(ii) by a firm, then by any partner or partners of the firm, authorised
(impliedly under sec. 19, Partnership Act, or expressly by power of
attorney), on behalf of the firm;
(iii) by a corporation such as a university or a local authority or other
statutory corporation, then by a person or the persons authorised in this
behalf by or under the statute incorporating such body. Whether it is also
to be sealed depends on the provisions of such statute;
(iv) by a company or co-operative society or a society registered under the
Societies Registration Act, 1860, then by a person authorised in this
behalf by or under the articles of association or rules or regulations or
bye laws, as the case may be section 48 of the Companies Act, 1956
requires that the common seal of the company should be affixed in the
case of a power of attorney. Such seal is not required for other
agreements and conveyances (sec. 54);
(v) by a trustee or mutwalli, then by such person describing himself as such;
(vi) by an attorney, then by such person describing himself as such and
mentioning the date of the deed of the power of attorney;
Drafts, Forms, Precedents—A Preliminary Note
21
(vii) by the Government, then by the person authorised in this behalf under
Article 299 of the Constitution of India, by and on behalf of the President
or the Governor, as the case may be, specifying the official designation
and preferably notification or government order under which the authority
is conferred. (The other party may well insist on seeing such notification
or authorisation.)]
Sign
The word ‘sign’ means “to write one’s name on, as in acknowledging
authorship”. Sec. 3 (56) of the General Clauses Act, 1897, extends its meaning,
with reference to a person who is unable to write his name, to include “mark”. The
document must be signed by a person in such a way as to acknowledge that he
is the party contracting, and it is not very material in what part of the document
the signature appears.
The execution of a deed is necessary under the Transfer of Property Act in
cases of mortgage, lease (except a tenancy from month to month or for a term
up to one year which may be created orally, accompanied by delivery of
possession. Sec. 107 of the Transfer of Property Act), gift1 of immovable property
and transfer of actionable claims, and the omission of the signature of the
executant will therefore make the deed invalid. But in case of sale there is no such
necessity if the property is movable or if the immovable property is sold for less
than one hundred rupees.
A deed of transfer need not be signed by the transferee, even though he is
mentioned as a party. All conditions and covenants are binding upon him without
his executing the conveyance if he consents to it by entering upon the land
granted under the conveyance. But if the deed contains any special covenant by
the transferee or any reservation (which legally amounts to a re-grant by the
transferee), it is always proper to have it signed by the transferee also.
Attestation is necessary in case of some deeds, e.g., mortgage, gift, bond,
will and revocation of will. In other cases, though it is not necessary, it is except
in the case of negotiable instruments, always safe to have the signature of the
executants attested. Attestation in India, whenever required by law, should be by
at least two witnesses, who should have seen the executant sign the deed or
should have received from the executant personal acknowledgement of his
signature but it is not necessary that both the witnesses should have been present
at the same time. (See definition of “attested” in sec. 3 of the Transfer of Property
Act and also sec. 63, Indian Succession Act).
A deed is normally signed at the end on the right side of its last page and the
attesting witnesses may sign on the left side. If both parties sign, transferor may
sign on the right and the transferee on the left and witnesses to each signature
may sign below the signature. However, as noted earlier, the place at which the
1. The Transfer of Property Act, is, however, not exhaustive, nor is it universally
applicable. Muslim gifts are thus governed by Muslim law, vide sec. 129, Transfer of
Property Act. A deed is not necessary for a gift by a Muslim, but if deed is executed it
requires registration.
22
Corporate and Commercial Agreements
signatures occur has no legal effect. It is also expedient to ensure that preceding
pages are also initialled or signed by the Parties.
Forms of Attestation
There is no particular form of attestation but it should appear clearly that a
witness intended to sign as an attesting witness. The practice in Indian forms is
to write the word “Witness” above the signature. In English forms between the
signatures of the executants and witnesses the words “in the presence of” are
added. It has been held that the signature of the scribe or of an identifying witness
or of a third party approving the transaction or of the registering officer at the
bottom of a deed does not by itself, amount to attestation.1 If the scribe intends
to sign as an attesting witness, this should clearly appear from the deed by the
addition of the word “Witness”, or otherwise. The animus to attest is necessary for
any such person to be treated as an attesting witness.2 In the case of a will it
is further noteworthy that while the testator may sign or affix his mark himself or
direct some other person to sign on his behalf, the attestor is not allowed to so
delegate his authority to any other person to sign or make a mark on his behalf.3
Illiterate persons
Illiterate persons not able to sign may either put their pen mark or thumb mark.
Only the latter is in vogue in modern deeds. As a thumb mark is more satisfactory
for identification purposes, the executant or witness should put his thumb mark (as
per usage, left thumb mark in the case of males and right thumb mark in the case
of females, and if that hand or thumb is defective or injured then of the other
thumb), and the scribe or another person should make an endorsement above or
under the mark to show whose mark and of which hand’s thumb it is. The ancient
practice of the executant touching the pen of the scribe and the scribe signing for
him is obsolete and unsafe.
Delivery
The last formality to validate a deed in England is ‘delivery”4 but this is not
necessary in this country.
Errors and Omissions
Any error or omission detected after engrossing a deed on stamped paper but
before its completion by signature may be corrected, and the corrections initialled
by the parties signing the deed. It is better and safer to have these noted in a
memorandum before the testimonium.
Postscript
A new covenant may according to old English practice be added as a
1. Sarkar Barnad v. Alak Manjary, AIR 1925 PC 89: 26 BLR 737: 83 IC 170; Girja Dutt v.
Gangotri, AIR 1955 SC 346; M.L. Abdul Jaffar v. Venkatashastri, AIR 1969 SC 1147.
2. Badri Prasad v. Abdul Karim, 11 ALJ 260 (262); Dhyan Chand v. Savitri Devi, AIR 1998 HP
37; Shamu Patter v. Abdul Kadir, 35 M 607.
3. Nagulapati Lakshamma v. Mupparaju, (1998) 5 SCC 285 (case law on ‘sign’).
4. See Halsbury 4th Edn. Vol. 12, para 1329.
Drafts, Forms, Precedents—A Preliminary Note
23
postscript after the testimonium and it will have the same effect as one entered
before.1 However, this has now fallen in disuse and the modern practice is either
to note the errors before the testimonium or to execute a separate supplementary
deed (post).
Endorsement and Supplemental Deeds
When a deed or agreement becomes necessary in pursuance of, or in relation
to, a prior deed, this is effected either by endorsement on the prior deed when a
short writing would be sufficient, or by a separate deed described as
“supplemental” or “intended to be read as annexed to the prior deed” in which case,
detailed recitals of the prior deed are unnecessary. For example, if a lessee
transfers his rights under the lease to another person such transfer, or if it is
intended to alter any covenants in the lease or to surrender the lease, such
agreement, may be endorsed on the lease itself (see precedents under “Lease”);
if a mortgage is redeemed on receipt of mortgage money, the reconveyance may
be endorsed on the mortgage deed (see precedents under Mortgage); and
appointment of new trustees and revocation of trusts are usually made by
endorsements on the deed of trust (see precedents under “Trust”). The same thing
can also be done by a separate deed if a short writing is not considered sufficient
and the deed, either by reason of large recital or on account of lengthy covenants,
promises to be a lengthy and detailed one. The matter is purely one of
convenience, but mostly in contracts with the Government, a supplemental deed
becomes necessary either because a new term of agreement is sought to be
added or because modification of the existing terms has been subsequently
agreed upon.
Endorsements, which are of general use and for which no supplemental deed
is necessary, relate to part payment or acknowledgement of a debt by a debtor.
What is necessary for such an endorsement is that the intention should be
expressed by use of specific words. Endorsements are also common for
negotiating a negotiable instrument or transfer of a bill of exchange or a policy of
insurance or Government Securities. Again no particular form of endorsement is
necessary in such cases. What is necessary is that the words should clearly show
the transfer of interest in favour of a particular person.
Form of Endorsement
The endorsement may begin either by saying “This deed made on this ……
day of …… between the within named…..… and the within named ….…” Or
directly thus: “The parties to the within written deed hereby agree as follows”. The
operative part of the deed then follows, usually without any recitals unless any
recital is also absolutely necessary in order to make the deed intelligible. The
original deed on which the endorsement is made is referred to in the endorsement
as the ‘within written deed” and the parties, recital, covenant, etc., in the original
deed are referred to as “within named lessor” or “within named parties” or “within
mentioned covenants” or “within recited ….” Or “within described house” or “the
garden described in the schedule to the within written deed”, etc. If after one
1. Thomson v. Butcher, (1625) 3 Buls 300; Keele v. Wheeler, (1844) 7 man and Gr. 665.
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Corporate and Commercial Agreements
endorsement another is made, the reference in the latter to the former endorsed
deed shall be made by the use of the word “above” instead of “within”. After the
operative part of the endorsement, the usual testimonium clause shall be added,
ending with signatures of executants and of attesting witnesses, if necessary.
Form of Supplemental Deed
The form shall be the usual form of deed or agreement in which after the
names of parties should be inserted the words “supplemental (or, intended to be
read as annexed) to a deed of… dated…. and made between the Parties hereto
(or, between…. and ….) hereinafter called the “Principal deed”. If the particulars of
the principal deed are somewhat lengthy, it is more convenient to refer to the
principal deed in the first recital and to say that this deed is supplemental to that
deed, thus “whereas this deed is supplemental to a deed of sale made, etc…
hereinafter called the “Principal Deed”. If the supplemental deed is supplemental
to several deeds each should be mentioned specifically. Then should follow such
recitals as are considered absolutely necessary in order to make the deed
intelligible for facts leading to the execution of the supplemental deed, but recitals
about the contents of the principal deed are not necessary. After that, should follow
the usual operative part and covenants etc. When referring to matters or persons
mentioned in the principal deed, we should say “….. mentioned (or, recited) in the
principal deed”.
Precedents of endorsement and supplemental deeds are given under the
heads of the principal deeds, e.g. Lease, Sale, Trust, etc., and all deeds given
under the head “rectification and modification” are supplemental deeds.
Stamp Duty by whom Payable
Section 29 of the Stamp Act provides which party, in the absence of an
agreement to the contrary, will bear the stamp duty payable on an instrument. This
may be kept in view while drafting a deed. Only when the party other than the one
mentioned in sec. 29 is to bear the stamp duty need specific provision be made
in the deed. Sec. 29 is not exhaustive of all the instruments on which the stamp
duty is leviable under the Stamp Act. In cases of instruments not provided for in
sec. 29, the stamp duty will be borne by the person who has agreed to pay it.
Stamp Duty on Endorsements and Supplemental Deeds
All endorsements or supplemental deeds should be stamped according to the
nature of the transaction which they evidence, e.g., if it is for receipt of money,
it should be stamped as a receipt; if it is an agreement, it should be stamped as
an agreement. Some documents if endorsed on prior deeds are exempt from
stamp duty, e.g., receipt of mortgage money endorsed on mortgage deed, or
transfer of a bill of exchange or policy of insurance or securities of Government
of India endorsed on those papers.
Registration
Whether a deed is required to be compulsorily registered (sec. 17, Registration
Act) will be shown in the Preliminary Note to each deed. Even some documents
not compulsorily registrable may be voluntarily got registered (sec. 18) sec. 49
Drafts, Forms, Precedents—A Preliminary Note
25
provides that an unregistered document of the nature requiring compulsory
registration may be used in evidence for certain collateral purposes, though not as
evidence of the transaction itself. Sec. 60(2) provides that the sub- Registrar’s
endorsement while registering a document is admissible for proving the facts
mentioned there. 1
Precautions
Besides knowing the general requirements of deeds of transfer and the various
components, which compose a deed, it is also necessary to know some other
essential requirements of drafting specially in light of rules of constructions of
documents. In this part it is proposed to point out the precautions, which are to
be taken in drafting a document and in the next part to note the various rules of
interpretation of documents, which may help a conveyancer to a scientific drafting
of deeds.
The object of writing a deed is that the parties should remain bound to their
contractual obligations. The deed has therefore to be drawn up in a manner as to
give no chance to any party to the deed to resale from the rights and obligations
created under the deed. In the words of Sir James Fitzjames Stephen, “in drafting
it is not enough to gain a degree of precision which a person reading in bad faith
cannot misunderstand”2. To achieve this objective the following precautions should
be observed.
(1) The deed should contain all the material facts leading to the agreement
along with the terms and conditions settled between the parties.
(2) The intention of the parties should be made clear by plain and simple
reading of the document as a whole and there should be no ambiguity
or inconsistency between paragraphs or clauses of the deed.
(3) The words and expressions should be used in their primary natural and
grammatical meanings and the same words and expressions should
have same meaning throughout.
(4) The recitals should be kept at the minimum and drafted in consonance
with the operative part, otherwise some recital may be interpreted to
control the operative part.
Rules of Construction Deeds
(a) Relevancy of precedents for interpreting other documents: Unless the
language of two documents is identical, an interpretation placed by courts on one
document is no authority for the proposition that a document differently drafted,
though using partially similar language, should be similarly interpreted.1 Judicial
interpretation of similar documents in the past can2 and ought3 to be relied on,
but as the effect of the words used must inevitably depend on the context and
would be conditioned by the tenor of each document such decisions are not very
useful unless the words used are identical.4
1. Gopal Das v. Sri Thakurji, AIR 1943 PC, followed in S. Rathnammal v. Mattadu, 1998 AIHC
3094 (Mad).
2. Sant Ram v. Rajinder Lal, AIR 1978 SC 1601: (1979) 2 SCC 274 (para 8): (1979) 1 SCWR
175; Royal Talkies v. ESIC, (1978) 4 SCC 204 (para 23).
Corporate and Commercial Agreements
26
(b) Description of deed not conclusive: As will be seen under the various
Preliminary Notes, such as under LICENCE and under MORTGAGE, post, the
description given to a transaction by the parties in the deed is not conclusive. It
is the substance and not the form that has to be seen. A document described as
licence may be construed as a lease, a deed described as a sale with a condition
of repurchase may be construed as a mortgage, a deed described as family
settlement may be construed to be a partition, and so on. Numerous cases under
the Stamp Act, also show that sometimes parties deliberately misdescribe a deed
in order to avoid the need for registration or to evade stamp duty. “The document
is weighed by its content, not the title.5
(c) Construction of Deed a question of law or a mixed question of law and fact:
The interpretation of written document is, as stated in Halsbury’s,6 “generally
speaking, a matter of law”. But the ascertainment of the meaning of technical or
commercial terms used in a written contract, and also, in order to enable the
construction of the document, the surrounding circumstances of the particular
case, are questions of fact; where there is a latent ambiguity in a written
instrument, the question of which meaning was intended is also a question of
fact.7 Sections 91 and 92 of the Evidence Act also point to the same.
(d) Executed and Executory Contracts: Sometimes a contract is completed in
two parts. At first an executory contract is executed and later an executed
contract. In such cases, too, the same language should be used, so that a
different intention may not be made out by difference in language. It should be
remembered that a deed is primarily construed from the words and expression
used in it and not on the basis of antecedent contract. In case of any difference
between the preliminary contract and final contract the terms of the latter must
prevail.8 In some cases the ground for such a view has been stated to be merger
of the earlier contract into the latter1, or that the first contract was merely a
provisional one.2 (see also the next sub-heading “Reference to earlier deeds”, in
this context).
(e) Draftsman to be careful in the choice of words and expressions: The
language of a deed, in order to convey the intention of the parties, should be
simple, so that no other meaning except the primary and natural meaning may be
imputed. The sentences should be grammatically correct. The court while
construing a document would give to the words used their natural and grammatical
meanings.3 In construing contracts, the courts cannot give the words of the
Adbulla Ahmad v. Animendra K. Mitter, AIR 1950 SC 15.
Ram Gopal v. Nandlal, AIR 1951 SC 139 (para 23).
State of Orissa v. Titlaghur Paper Mills, AIR 1985 SC 1293: (1985) Supp SCC 280.
Shapoor F Mazda v. Durga Prosad, AIR 1961 SC 1236.
Shyam Sunder v. Delta International Ltd., AIR 1998 Cal 233 (DB), Folld. Inderjeet Singh v.
Karam Chand Thapar; (1995) 6 SCC 166 (para 13): AIR 1996 SC 247.
6. 4th Edn. Ol. 12 para 1461.
7. The references to judge and jury in Halsbury (ibid.) are irrelevant in the Indian context,
hence replaced here by questions of law and of fact respectively.
8. Kondal Rao Naidu v. Dhanakoti Ammal, AIR 1938 Mad 81: 1937 MWN 1027: 176 IC 173;
see however, Agarwal Engg. Co. v. Technoimpex, (1977) 4 SCC 367 (para 17).
1.
2.
3.
4.
5.
Drafts, Forms, Precedents—A Preliminary Note
27
contract an entirely different meaning even to avoid superfluity. The parties
intention must be found out form the language in which the parties to the
agreement chose to express themselves. This can easily be achieved if in drafting
a document the same words and expressions are used to convey the same
meaning in different clauses of the deed. Use of different words and language or
substituted words, even though the meaning may be same, should be avoided. A
draftsman, unlike a literary writer or orator, cannot indulge in the luxury of “elegant
variation”4 As pointed out in Life Insurance Corporation of India v. Dharam Vir
Anand5, “when the same clause of a contract uses two different expressions,
ordinarily those different expressions convey different meanings and both the
expressions cannot be held to be conveying one and the same meaning”. Because
if any inconsistency arises in the literal construction of the words used, the courts
in their attempt to reconcile the inconsistency may interpret the clauses in a
manner which may not be according to the actual intention of the contracting
parties. If the inconsistency cannot be resolved by attributing natural and
grammatical meanings, the courts may give the words any other reasonably
possible construction that may resolve the inconsistency.6
Notes on the Indian Law of Contract
Introduction
The Law of Contract is to be found in the Indian Contract Act of 1872. The
Act is in essence a code of English Common Law and like all codes based on
an existing authoritative doctrine; it assumes certain knowledge of principles and
habits of thought, which are embodied in that doctrine7. The English Law has been
modified to suit the Indian ethos. Separate statutes govern sale of goods and
partnership.
General Concepts
The modifications to the English Law have not been drastic and most of the
basic concepts of proposal, acceptance, consideration, free consent, voidable
contracts and void agreements, etc., are very similar to those in English Law. The
limits concerning revocation of acceptance of a proposal have been broadened so
that the promisee might revoke his acceptance before it comes to the knowledge
of the promisor. Under English Law, acceptance is complete as soon as
communication is dispatched. Under English Law, past consideration is not
recognised but as per the Indian Contract Act, it is good consideration. The Indian
1. Knight Sugar Co. Ltd v. Alberata Railway & Irrigation Co., 173 UC 88 (PC).
2. Laxman Waman v. Balmukund Jainarain, AIR 1954 Nag 142; State of Punjab v. Okara Grain
Buyers Syndicate Ltd., AIR 1964 SC 669.
3. Sohanlal Pachisia & Co.v. Bilasrav Khemani, AIR 1954 Cal 179 (para 17).
4. Fowler’s Modern English Usage (Oxford) does not recommend elegant variation for
users of the language. Dictionaries of synonyms such as Roget’s Thesarus are available
for that purpose.
5. (1998) 7 SCC 348.
6. Raneegunge Coal Association Ltd. v. Tata Iron and Steel Co. Ltd., AIR 1940 PC 151 (153).
7. Satyabhrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44.
28
Corporate and Commercial Agreements
Contract Act, also recognises some agreements as contracts without
consideration, for example, contracts out of natural love and affection or promise
to pay a time barred debt. English Law deems consideration to be a vital ingredient
of a valid contract and declares all agreements devoid of consideration as null.
Contract with a minor is void in India, whereas in England, it is voidable. So too
in contracts made by persons under the influence of alcohol, in India all such
agreements are void but in England they can be ratified by the drunken party when
they are sober.
According to section 10 of the Indian Contract Act, any agreement made by
free consent of parties who are competent to contract, for lawful consideration and
object and not expressly declared to be void are valid, enforceable contracts.
Consent is said to be free when not obtained by coercion, fraud, misrepresentation
or undue influence and such a contract is voidable at the option of the party whose
consent was so caused. Even though inadequacy of consideration is taken into
account by the court in determining whether consent was freely given or not, by
itself it does not provide sufficient grounds for avoiding an agreement. It is not the
court’s duty to bargain an equitable agreement between contracting Parties.
Section 23 of the Act talks about lawful consideration and object. It broadly
states that a contract would be enforceable unless its consideration or object is
not illegal, not forbidden by law, not opposed to public policy1, or of such nature
that, if enforced, would not defeat the purpose of an already existing legislation.
For example, in the case of an agreement extending the time of limitation of a
debt, it would appear, prima facie, not to be in restraint of legal proceedings and
not an attempt to oust the jurisdiction of the court. Nevertheless, it would be
declared void under section 23 as tending to defeat the provisions of the Limitation
Act.
When the situation arises of the consideration or object of an agreement being
partly legal and partly illegal, the Act states that if the lawful and unlawful parts
can be severed then the illegal part can be rejected and the legal portion retained.
If, however, the two being inseparable, the entire agreement is void. In the case
of marriage contracts, whereby a person is bound not to marry or whereby his or
her freedom of choice is interfered with, such a contract would be contrary to
public policy and therefore void.
When both the parties are mistaken as to the validity of a material fact
essential to the contract, the agreement is void. A mistake as to foreign law has
the same effect as a mistake of fact but a mistake as to a law in force in India
will not vitiate a contract1 unless it concerns private rights of property or is brought
about by a wilful misrepresentation by one of the parties to the contract.
It is provided in section 27 that an agreement by which one is restrained
wholly or partly from exercising a lawful profession, trade or commercial
transaction of any kind is deemed to be void. The exception to this case lies where
in the case of the sale of the goodwill of a business; the seller may contract with
the buyer to refrain from carrying on a similar business. As long as the court feels
1. Delhi Transport Corp. v. D.T.C. Mazdoor Congress, AIR 1991 Supp (1) SSC 600.
Drafts, Forms, Precedents—A Preliminary Note
29
such limitations to be reasonable, the contract will be held valid. Similarly section
28 lays down that all agreements in restraint of legal proceedings are void2. What
the section prevents is that the rights of the parties should not be withdrawn
absolutely from the jurisdiction of the court.
Liability under joint contracts has been made joint and several. In variation of
English Law, where two or more parties have made a joint promise, the release
of one such person does not discharge the other joint promisors. Wagering
agreements are void but not illegal and thus are unenforceable in the eyes of the
law.
Sections 68 to 73 deal with certain relations resembling those created by
contract. Such relations are termed quasi-contracts. The difference between
ordinary contracts and quasi contracts is that in the former, legal obligations are
created with the volition of the parties. In the case of the latter, the Act provides,
that where a person does something for another without intending it to be a
gratuitous act and the other person enjoys the benefit of this Act, the latter is
bound to compensate the former3.
Breach
Sections 73 to 75 deal with the consequences of breach of contract. There are
three remedies for such breach:
(i) Payment of damages
(ii) Specific performance
(iii) Injunction
While the Indian Specific Relief Act of 1963, governs the latter two, the first
remedy is dealt with by the Indian Contract Act, 1872. The fundamental principle
governing the measurement of extent of damages to be awarded is that the loss
or damage must have naturally arisen in the usual course of events from the
breach or which the Parties knew likely to result from breach4.
If the contract provides for a sum to be paid by the defaulting party on breach
of contract then the court must decide whether the sum stipulated is a penalty in
terrorem of breach or whether it is an actual fair estimation of loss or damage
caused by breach. The court does not decide the validity of the penalty clause by
its name but delves into the nature of the stipulation and then awards reasonable
compensation not more than the amount stipulated for in the contract. The
measure of damages is generally the difference between the price contracted for
and the market price of the goods on the day of the breach.
Excuses for non-performance
There are certain circumstances under which a Party need not perform his
part of the contract. In cases where the act to be performed is unlawful or
impossible, such agreements are void. However, if a party knew or could have
1.
2.
3.
4.
Kalyanpur Lime Works Ltd. v. State of Bihar, AIR 1954 SC 165.
V. Narasimharaju v. V. Gurumurthyraju, AIR 1963 SC 107.
Union of India v. Amar Singh, AIR 1960 SC 233.
Jankidas v. Mohanlal, AIR 1951 SC 144.
30
Corporate and Commercial Agreements
known with ordinary diligence that the act to be performed was illegal or impossible
then that party must compensate the other contracting party for loss caused due
to non-performance. It is also, provided that if a Party through his own actions
frustrates performance then he is not entitled to claim for damages1. Other
circumstances would be outbreak of war, strike by employees, etc., in cases
where time is the essence of the contract and where performance is delayed the
contract is voidable at the option of the other Party. However, commercial
impossibility or unfeasibility alone shall not determine a contract2.
Indemnity and Guarantee
The law being substantially the same as in England it has been laid down that
a contract of indemnity is an agreement by which one party promises to save the
other party from any loss suffered by him due to the conduct of the promisor or
any other person. Indian Law differs from English Law on the point that in the latter
even loss suffered due to natural disasters is covered by the indemnity. This is
not so in India. A contract of guarantee is an agreement to perform the promise
or discharge the liability of a third Party in case of his default. The Party that gives
the guarantee in this case is known as the surety. So, in essence, the difference
between contracts of indemnity and guarantee is that a contract of indemnity is
simply for the reimbursement of loss whereas, a contract of guarantee is for the
security of the creditor. In contracts of indemnity there is only one contract
between two parties. In contracts of guarantee, there are three contracts, two
expressed and one implied between three parties i.e., the creditor, the principal
debtor and the surety. Guarantee obtained by concealment of material facts or by
misrepresentation renders the guarantee invalid. The other topics dealt with under
this heading are surety’s liability, continuing guarantee, discharge of surety’s
liability etc.
Bailments and Pledges
Section 148 defines bailment as the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when the person is
accomplished, be returned or otherwise disposed of according to the directions of
the person delivering them. The Act goes onto state that the bailor would be held
liable for damages if he fails to disclose defects in the goods supplied. The bailee
is barred from making unauthorised use of the goods supplied and is bound to take
care of them as an ordinary man of prudence1. In the event of mixture of goods
by bailee with his own goods there are three scenarios:
(i) If the mixture is with the consent of the bailor then the bailor and bailee
have an interest in proportion to their respective shares in the mixture
thus produced.
(ii) If the bailee, without the consent of the bailor, mixes the goods with his
own goods and the goods can be separated and divided, the property in
the goods remain in the parties respectively. In this case the bailee is
bound to bear the expenses of separation or division, and any damage
1. Boothlinga Agencies v. V.T.C. Periaswami Nadar, AIR 1969 SC 110.
2. Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588.
Drafts, Forms, Precedents—A Preliminary Note
31
arising from the mixture.
(iii) If the bailee, without the consent of the bailor, mixes the goods of the
bailor with his own goods, in such a manner that it is impossible to
separate the goods bailed, from the other goods and deliver them back,
the bailor is entitled to be compensated by the bailee for the loss of the
goods.
Section 170 deals with the liens of a bailee who has rendered service involving
exercise of labour and skill in respect of goods bailed. Pledge is the bailment of
goods as security for the payment of debts or performance of promise. If pledger
makes default in the performance of his promise or in payment of the debt then
the Act provides that the pledgee may either file suit or sell the goods after giving
notice and if the sale proceeds are not sufficient, recover damages from the
pledger.
Bona fide Purchases
In English common law, it is an established principle that no person can give
better title than he himself possesses. Section 178 of the Indian Contract Act,
states that mercantile agents who are in poss